Inflation soared by 5 percent in May, the fastest year-over-year pace since 2008, as surging demand from the reopening economy met supply chains choked with shortages.
Rising prices in the heating, yet fragile, economy continue to erode consumer purchasing power, according to the latest Consumer Price Index report, which the Bureau of Labor Statistics released Thursday morning.
Manufacturers cut production during the early days of the coronavirus pandemic and are scrambling to catch up. That has led a wave of producers to flex their purchasing contracts and bulk up on materials at once, sending prices of limited commodities higher, raising input costs and passing down higher prices to consumers. Nationwide, there are shortages of chicken wings to ketchup packets, copper, lumber, semiconductors and furniture.
Airline fares are up by over 24 percent and clothing by 5.6 percent, and household furnishing prices rose by nearly 3 percent, according to the report, as vaccinated consumers increase travel, update wardrobes for spring and back at work and upgrade their homes. From April to May, jumps in prices for used cars and trucks drove a third of the overall increase. The food price index was up by 2.2 percent compared to last year.
Prices at the grocery store spiked during pandemic lockdowns in spring 2020 as shoppers stocked up and lean supply chains sputtered under the sudden national demand. Prices have not gone back down to their pre-pandemic levels.
The average national price paid for 16 ounces of bacon rose to $5.40 in May, up from $5.23 in April and higher than the $4.72 paid in January 2020, according to exclusive supermarket point-of-sale data from NielsenIQ.
Fresh ground beef rose to $5.32 a pound in May, up from $5.27 in April, higher than the average pre-pandemic cost, $5.02.
Chicken breasts fell from $3.20 to $3.14, still slightly higher than the $3.01 paid in January 2020.
The increases were higher in some metro areas. A pound of bacon in metro New York rose from $6.10 to $6.49, compared to $5.12 in January 2020. Prices for bacon are also elevated in the San Francisco metro area, up to $6.82 from $6.55, above the $5.71 paid in January 2020.
NBC News is tracking a basket of grocery items and updating an interactive data visualizer monthly.
"Across a wide basket of the most popular 5,000 items, shoppers are paying +0.4 pts more for groceries in May of 2021 vs May of 2020," said Phil Tedesco, vice president of retail intelligence analytics at NielsenIQ.
Another price hike is hidden in the decline of promotions. While the percentage of units sold on promotion is higher than it was a year ago, when discounts and coupons nearly vanished, along with hot items on shelves, it is still well below what it was last year.
"This indicates shoppers are not able to take advantage of as many discounts in-store as they did in a pre-Covid period," Tedesco said.
Experts say businesses are likely to resort to price increases over the summer to control demand as supplies of goods — and people to serve them — remain tentative.
"I think we're still going to have a warm summer when you have surge pricing kicking in for everything from airfares to hotels," Diane Swonk, chief economist at Grant Thornton, told CNBC.
The White House has said the inflationary effects are "transient" and will be offset by greater gains in the overall economy. The Federal Reserve has said it is fine with letting inflation run above the 2 percent target threshold to help reach full employment.
President Joe Biden's recently released budget proposal projects that the Consumer Price Index will rise by a modest 2.1 percent in 2022 and stabilize at 2.3 percent from 2024 to 2030.
"The budget certainly does project that there's going to be some short-term inflation, although we do expect it to settle back down," Cecilia Rouse, chair of the Council of Economic Advisers, told reporters on a conference call last week.
"We anticipate that because of the policies, we're going to have some GDP growth, which will be benefiting all Americans," Rouse added. "We know that when you reach full employment ... everybody will benefit and that the economy will benefit from the productivity-enhancing investments that are embedded in this budget."
While most economists agree, one bank has warned that the inflation could be more persistent than forecast and that it could have unintended consequences for precisely the groups the administration is trying to help.
"While it is admirable that this patience is due to the fact that the Fed's priorities are shifting towards social goals, neglecting inflation leaves global economies sitting on a time bomb," Deutsche Bank's chief economist, David Folkerts-Landau, and others wrote in a report. Their analysis warned of runaway inflation like that of the 1970s, which was tamed only by high interest rate increases, triggering a deep recession.
"The effects could be devastating, particularly for the most vulnerable in society," the firm said.
Year-over-year price increases can look higher because of "base effects," in which prices jump up from a low base suppressed by the pandemic.
"What is more concerning is that the month over month numbers — data comparing 2021 versus 2021 and not versus last year — continues to rise," Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, said in an email. "For this month's report on May prices, the increase was +0.6% and that follows on top of the previous report's +0.8% monthly increase."
Although the rate of increase of inflation may ebb, it's unlikely that the prices it brought will.
"It's questionable that once people start paying higher prices and, as more people come back into the workforce, people begin getting paid higher wages, how any of those increases will ever be rolled back," Zaccarelli said.
The Fed has said it believes it has multiple, finer-tuned tools in its kit to adjust the economy and tweak inflation besides broad-brush interest rates. Recently, it signaled that some of its bond purchases could end, which would tighten the loose monetary supply.
